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Effective Date of Recharacterization Repeal Clarified

(December 29,2017) There has been confusion surrounding the effective date of the provision in the Tax Reform and Jobs Act of 2017 that eliminates the option to recharacterize (i.e., undo) Roth conversions.

Specifically, differing interpretations have emerged concerning how, or even if, the new law will impact the recharacterization option for individuals who completed a Roth IRA conversion during 2017. While some industry observers have argued that the new law shuts down the recharacterization option for all Roth conversions as of January 1, 2018 (i.e., 2017 Roth conversions cannot be recharacterized after December 31, 2017), others—including Convergent—have interpreted the new law as applying only to Roth IRA conversions occurring on or after January 1, 2018, thereby allowing individuals to recharacterize 2017 Roth conversions up until their 2017 tax return due date, plus extensions.

Based on several phone conversations Convergent has had with both representatives from within the IRS as well as individuals involved in the legislative reconciliation process, Convergent is quite confident that the new law will ultimately be interpreted to allow the recharacterization of 2017 Roth IRA conversions up through individual's 2017 tax return due date, plus extensions.

While representatives of the IRS have stated that the IRS expects to issue guidance on this topic, it is not clear when such guidance will be forthcoming. Convergent will continue to monitor this issue, and provide updates as more information becomes available.